Organizational restructuring at Mai Linh Group from 2010-2014

Organizational restructuring can also beconsidered by Hammer and Champy 1993 as the fundamental rethinking and radicalredesign or change of business processes such as the process of rece

The process of writing this graduation thesis has provided me interesting experience Itwould not have been completed without guidance, support and motivation from many people whom I would like to express my gratitude and appreciation

First of all, I would like to thank my supervisor, Mr Nguyễn Hồng Quân Without his in-depth knowledge and careful guidance, I might not produce this work

Secondly, I would like to say thanks all the managers and staffs of Mai Linh North Joint Stock Company, for their cooperation that helped and inspired me in this writing

Last but not least, I would also like to give my warm thank to the authors, researchers, scientists who provided me such valuable materials for my research

Hanoi, May 14th, 2015

CONTENT

LIST OF TABLES

CHAPTER 1: INTRODUCTION 1

1.1 Background for the research 1

1.2 Research objectives 2

1.3 Research scope 2

1.4 Research questions 2

1.5 Research method 3

1.5.1 Literature review 3

1.5.2 Empirical study 3

1.6 Thesis structure 4

CHAPTER 2: LITERATURE REVIEW 5

2.1 Organizational restructuring 5

2.1.1 Definitions 5

2.1.2 Reasons 5

2.1.3 Types of organizational restructuring 7

2.1.4 Models 10

2.1.5 Communication in restructuring process 20

2.2 Employees under restructuring conditions 26

2.2.1 Employee attitude 26

2.2.2 Employee engagement 27

2.2.3 Employee morale 33

CHAPTER 3: RESEARCH PURPOSE 36

3.1 Overview of Mai Linh Group 36

3.2 Vision, mission and core values 37

3.3 Restructuring process of Mai Linh Group from 2010 to 2014 37

CHAPTER 4: RESEARCH METHODOLOGY 42

4.1 Research design 42

4.2 Treatment of data 43

4.2.1 Data collection 43

4.3 Questionnaire design 45

4.4 Pilot study 46

4.5 Sample population 47

4.6 Response rate 48

CHAPTER 5: RESULTS AND INTERPRETATION 49

5.1 Analysis of biographical information 49

5.2 Employee involvement in the process 51

5.3 Employee attitudes after the restructuring process 53

5.5 Communication process and strategy during restructuring 57

5.5.1 Forms of communication used during restructuring 59

5.5.3 Other findings 60

CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS 62

6.1 Main findings 62

6.1.1 Employee involvement in the restructuring process 62

6.1.2 Impact of restructuring on employee attitudes 62

6.1.3 Impact of restructuring on employees’ morale 63

6.1.4 Communication process and strategy during restructuring 63

6.2 Problems and limitations 64

6.3 Recommendations 64

6.4 Opportunities for further research 66

REFERENCES 67

APPENDIX 70

Appendix 1: Questionnaire covering letter 70

Appendix 2: Questionnaire covering letter in Vietnamese language 71

Appendix 3: Research questionnaire 72

Appendix 4: Research questionnaire in Vietnam language 79

Appendix 5: Results of questionnaires 84

Figure 2.1: Nadier & Tushman’s congruence model……….14

Figure 2.2: John Kotter’s eight-step model……… 18

Figure 2.3: The International Survey Research’s Model……… 31

Figure 3.1: The organizational chart of Mai Linh group in 2010……… 39

Figure 3.2: The organizational chart of Mai Linh group in 2014……… 40

Figure 5.1: Gender distribution of sample……….49

Figure 5.2: Age distribution of sample……… 50

Figure 5.3: Responses by number of years employed………50

Figure 5.4: Forms of communication predominantly used during restructuring…… 59

Table 3.1: Financial statement of Mai Linh Group from 2006 to 2014……….37

Table 3.2: The number of employees working for Mai Linh Group from 2010 to 2014…38 Table 5.1: Employee Involvement in the Process……… 52

Table 5.2: Employee Attitude after the Restructuring……… 54

Table 5.3: Employee morale after restructuring………56

Table 5.4: Communication process and strategy during restructuring……… 58

CHAPTER 1: INTRODUCTION1.1 Background for the research

Change has become inevitable in today’s fast paced and increasingly complex world.Besides to external factors such as high speed technological developments, economicfactors and globalization, a conceited change inside also fuels the change in thebusiness environment As a result, organizations need to keep up with rapiddevelopments in the business environment to survive This requires organizations to beopen and willing to change and once the organizations make up their mind to undergo aradical change, significant effort is required to effectively manage this change

Regarding Mai Linh, from 2007, it started to fall down into the hot growth trap byrushing to inject cash in the business fields such as education and real estate whichunrelated to their main business, namely transportation service Meanwhile, the modestincome was insufficient to cover expenses and then led Mai Linh into the statuses ofthe insolvency and the liquidity exhaustion In 2010, the annual shareholders' meeting

of Mai Linh group announced to embark on a process of restructuring the organizationafter suffering negative net profit after tax three years in a row from 2007 to 2009 Thegroup would return to the core business This process, like many other restructuringprocesses, has had some casualties in terms of people in which some had to leave theorganization while others were asked to pursue something else within the group Thiscreated a lot of uncertainty amongst many employees, particularly those that were fromthe redundant unit This has been the case despite the repeated assurances from themanagement that this was not a cost-cutting exercise, and therefore, staff should not beafraid that they may lose their jobs

The study is carried out at a child company of Mai Linh group named Mai LinhNorth Joint Stock Company In addition, due to the topic of this thesis, the authorconcentrates on the period of restructuring of Mai Linh group from 2010 to 2014.

1.4 Research questions

Main Problem

Although Mai Linh’s restructuring process affects all aspects of the group, the authorpays more attention to the question related to what strategies this organization canemploy to effectively restructure its business without compromising the employees’morale

1.5.2 Empirical study

A survey was conducted among certain employees of Mai Linh North Joint StockCompany Moreover, the researcher constructed a questionnaire to identify influencesthe recent restructuring process on its morale

Regarding a sample for this study, 30 employees of Mai Linh North Joint StockCompany including 11 taxi drivers and 19 office-based employees were selected as asample for the study.

1.6 Thesis structure

The study includes the following chapters:

Chapter 1: Problem statement and outline of the study

Chapter 2: Theory of organizational restructuring

Chapter 3: Description of organizational restructuring at Mai Linh Group

Chapter 4: Research methodology and analysis of biographical details

Chapter 5: Analysis and interpretation of results

Chapter 6: Summary, conclusions and recommendations

CHAPTER 2: LITERATURE REVIEW2.1 Organizational restructuring

2.1.1 Definitions

The concept of "organizational restructuring" has various definitions To be morespecific, organizational restructuring is “planned changes in a firm’s organizationalstructure that affect its use of people” (Cascio, 2002, p.4) On the other hand,Greenberg and Baron (1995) define this concept as the altering of size and basicconfiguration of the organizational chart Organizational restructuring can also beconsidered by Hammer and Champy (1993) as the fundamental rethinking and radicalredesign or change of business processes (such as the process of receiving a sales order

to billing the customer and receiving and payment), in the way in which anorganization performs its business activities, to bring about dramatic improvements incritical, contemporary measures of performance, such as cost, quality, service andspeed

2.1.2 Reasons

Regarding reasons of organizational restructuring, many organizations these days oftentake part in activities which are designed to improve their organizational effectiveness,which then would create a need for the organizations to restructure to enhance theprocess Also, organizational restructuring may refer to different forms such as theaddition of new product lines or markets, mergers, acquisitions and cost reductionexercises These various forms of restructuring often confront a common challenge thatthey require human resources to be changed so that an appropriate staff level can bemaintained in a corporate structure to foster both the proactive and reactive capacity ofthe organization to meet new demands in the marketplace Therefore, the restructuringprocess would cause either upsizing or downsizing the staffing levels In either case,the result will involve the rightsizing and the reorganization as well as realignment ofworkflows Especially, to bolster the productive and effective use of resources, lines of

responsibility and authority require to be structured (American Institute of CertifiedPublic Accountant, 2004).

Organizational restructuring, by definition, involves fundamental changes in theorganization and naturally causes suspicions and uncertainty among workers.Companies need to manage this process very carefully to minimize pain anddisruptions that may negatively effect on the business (American Institute of CertifiedPublic Accountant, 2004)

According to Byars (1992), the need to restructure may be triggered by various forcessuch as the business expansion of the organization, products or customer base diversity,expansion of product lines through acquisitions, and entering into a joint venture withanother company in a bid to access bigger markets The following are the reasonsgenerally given by most organizations for reorganizing:

- To increase profitability of the company;

- To foster productivity;

- To develop competitive advantages;

- To enhance the ratios of the balance sheet;

- To improve growth rates; and

- To strategically shift the direction and focus

Byars (1992) also suggests that there are many factors that influence the structure ofthe organization, but the organizational structure cannot be altered every time whenone of these factors changes because perpetual restructuring will lead to a state ofchaos and confusion within the organization The organizational restructuring is alsonot a solution to inferior products offering, bad strategies applying or filling ofpositions with unsuitable individuals Organizations should set relevant objectives thatwill measure the success of the restructuring process These objectives should always

be in sync with the goals of the other parts of the corporate strategic plan

Under governments’ pressure, organizational restructuring can take place in owned enterprises, especially in countries in which state-owned companies dominate Based on Foreign & Commonwealth Office of the UK (2014), Vietnam has attempted

state-to reduce the number of its state enterprises date back state-to1990s Although such

companies have employed high total capital of government, business efficiency is negative when many of them have suffered from negative profits and even accounted for many non-performaning loans During the restructuring process of Vietnamese stateenterprises, the State Capital Investment Corporation, established in 2005, has been authorized to purchase shares and become the strategic investor when an initial public offering fails The State Bank of Vietnam will be involved too, to acquire divestments from the financial and banking businesses of state-owned enterprises

Organizations today are also increasingly encountering intense competition,demanding customers, economic pressures and financial crises To effectively deal withthe potentially negative effects of these situations, they need to devise suitablestrategies, decrease operating costs, enhance the quality of both products and services

as well as increase their reactive capacity to respond to new opportunities in the marketplace

2.1.3 Types of organizational restructuring

Cascio (2002) suggests an approach named ‘responsible restructuring’ as an alternativefor the traditional method that requires the decline in the number of employees withpainful consequences that follow This new term, however, depends on themanagement view of employees Management who considers their employees as costs

to be reduced tends to reduce their workforce when restructuring They always look at

an irreducible core of workers that the business has to make sure that minimum figure

of employees is maintained On the other hand, management who view their employees

as assets to be nurtured and developed is more likely to be responsible restructurers.They constantly seek new ways of doing business that will ensure that employees areutilized more efficiently and effectively While the downsizers often consider workers

as commodities that can be changeable and substituted for one another, the responsiblerestructurers view their employees as sources of renewal and creativity as well ashaving potential to grow the business.

Cascio (2002) also mentions that organizations following a pure employmentdownsizing approach are likely to focus on altering the number of employees withoutaltering the manner in which the work is done This approach hardly brings about long-term effects that management had been looking for On the other hand, theorganizations that pursue a ‘responsible restructuring’ approach tend to depend on theiremployees to offer continuous competitive advantage and accept a wide range ofpractices The following are some of such practices:

- Adopting training programs to develop employees’ skills and knowledge;

- Sharing of information;

- Encouraging their employees to participate in the design and execution of workprocesses;

- Adopting organizational structures that are changed;

- Promoting partnerships between employees and management;

- Adopting a customer centric approach in their design and delivery of productsand services; and

- Remunerate employees according to their skills and organizational performance.These practices must be applied together as a system in order to bring about goodresults This approach to restructuring does give rise to enhanced performance andproductivity amongst workers as well as longer-term financial performance for theorganization

According to Senge et al (1999) during the restructuring process of an organization, itsemployees do require some help to effectively deal with problems cropping up.Restructuring must be viewed as an ongoing process rather than a project The

successful implementation of change requires organizations to change their mindsetand this does not happen overnight Employees must not only be given both intellectualand financial tools needed to cope with future business challenges, but be assisted instarting to see the business environment differently This will help them to comprehendthe need for change in their organization and this will naturally make them moresupportive of change

Organizational restructuring may also involve changing the size and the basicarrangement of the organizational chart It may involve downsizing which is a process

of reducing the number of employees required to perform effectively This process isnot directed only at retrenching workers, but also at ensuring that the newly designedstructure absorbs only the number of employees required, nothing more and nothingless It is therefore also referred to as rightsizing

Organizations can also restructure through outsourcing of the non-core parts of theirbusiness to pay all its attention to core business functions that are enshrined in itsmission Depending on the outsourcing agreement, the company to which the business

is outsourced may employ the same workers who were manufacturing the products orservices from the outsourcing company and vice versa This form of restructuring maynot necessarily lead to the loss of jobs (Greenberg and Baron, 1995)

According Foreign & Commonwealth Office of the UK (2014), restructuring processcan take place in state-owned enterprises by equitization Equitization refers to theprivatization of a wholly-state-owned enterprise by selling a part or all of the assets andliabilities of the state-owned enterprises to the private sector, thus transforming thestate-owned enterprises into a joint-stock company As a result, the government may ormay not be a shareholder of state-owned enterprises There are some objectives whenintroducing equitisation of the state-owned enterprises in Vietnam The first aim isimproving economic efficiency of state sector when some state-owned companies inVietnam continue to have negative influences on economic performance and to worsenproblems with public investment, the banking sector and fiscal sustainability

Specifically, thanks to closer relationships with government, many unproductivegovernment-owned corporations can gain access to public contracts and carry out themajority of development and infrastructure projects They also diversified into non-core areas during investment boom but did not succeed in these businesses, andtherefore, took up many non-performing loans held by Vietnam’s banks, which would

be guaranteed by the state As a result, equitisation could reduce deficits of state budgetowing to subsidies and bearing state-owned enterprises’ losses and utilize any availablecapital resources in the economy Another goal of equitisation is mobilizing all ofcapital resources available for investment to improve management, technologies andemployment in the state sector Last but not least, equitisation helps employees to beshareholders of their enterprises and strengthens the relationship between employeesand shareholders

2.1.4 Models

Contemporary literature reveals various change models that managers can use toimplement changes in their organizations These models can assist not only inmanaging the changes happening in an organization, but can also help in anticipatingand identifying possible key issues that are critical in managing change process

2.1.4.1 Burke-Litwin causal model of organizational performance and change

The Burke-Litwin model is an open system model, illustrating the interaction betweenthe organization and factors in the external environment Thanks to this, managementcan gain in-depth understanding of problems which may happen when restructuring isbrought about by the serious changes The Burke-Litwin model also entails otheraspects such as structure, systems, management practices, climate, individual skills,and motivation that are critical in understanding and simulating transition

This model was first introduced by Warren W Burke and George Litwin in 1989 andfurther refined in 1992 The content of this includes both what and how: “whatorganizational dimensions are required to successfully change and how thesedimensions should be connected causally to reach the change goals” (Burke & Litwin,

1992, p 525) Both authors employ theoretical and empirical insights to the model,making it pragmatic for both empirical researches as well as guiding and assessingchange initiatives

The Burke-Litwin Model encompasses 12 components, each presenting an importanttask or concept within the framework of an organization The elements and theirdefinitions, as described by Burke and Litwin (1992) are listed below

- External environment

The external environment is any outside condition or situation that affects theorganization's performance such as markets, legislation, competition and the economy.All of these will have consequences for organizations, and, it is vital that changemanagers continually scan the environment for issues that will affect the restructuringprocess

- Mission and strategy

An organization’s mission articulates its reason for existing It is the foundation uponwhich all activity should be built The strategy then sets out, in broad terms, how theorganization will go about achieving its mission Very often, the strategy will bedeveloped in light of environmental change, and will have a significant impact on thework of employees So, change managers need to understand change in strategy and beable to communicate the implications to their staff

- Leadership

Leadership considers the attitudes and behavior of senior colleagues and how thesebehaviors are perceived by the organization as a whole The way in which change isimplemented and accepted through the organization will be largely influenced by thetop team

- Culture

Organizational culture can be described as “the way we do things around here” Inother words, culture of an organization is the collection of overt and covert rules,

values, and principles which endure and guide organizational behavior Culture changedoes not happen overnight It evolves over time as a result of many other changes inthe organization

- Structure

Structure is the allocation of functions and human resources into specific areas andlevels of responsibility, decision-making authority, communication, and relationships tomake sure effective implementation of the organization‘s mission and strategy

- Climate

This concept considers employees’ perception of their current colleagues and workingenvironment Changes tend to invoke a wide range of emotional and political responsesfrom staff to the immediate working environment, so they need to be managedsensitively This is particularly the case where change involves moving location, achange in personnel, or a change in terms of conditions of service, such as workinghours

- Task requirements and individual skills/abilities

Task requirements and individual skills/abilities refer to the required behavior for taskeffectiveness, including specific skills and knowledge for employees to fulfill theirwork for which they have been assigned and for which they feel directly responsible

- Individual needs and values

Individual needs and values represent the specific psychological factors that providedesire and worth for individual actions or thoughts

- Motivation

Motivation is aroused behavior tendencies to move toward individual andorganizational goals, take needed action, and persist until satisfaction is attained.Motivation plays an important role in effective change The real challenge is to retainmotivation throughout a change project, particularly when change is often not well-received by those affected

- Individual and organizational performance

The concept of individual and organizational performance describes the result oroutcome as well as the indicator of effort and achievement such as productivity,customer satisfaction, profit, and quality (Burke & Litwin, 1992, pp 531-533)

2.1.4.2 Nadler and Tushman’s congruence model

The model for managing change developed by Nadler and Tushman is based on theunderstanding the factors that have impact on the success of the change process Thecongruence represents an organization with its sub-systems, which sorts out andtranslates the changes from the external environment The organization (the system)diagnoses the inputs from internal and external change drivers, puts them into thetransformational process (composed of sub-systems) and acquires outputs that can beused at the individual, team, and organizational level The sub-systems are notindependent from each other The interactions and dependencies among sub-systemsare fundamental for the success of the change management process

Figure 2.1: Nadier & Tushman’s congruence model

Source: David A Nadler and Michael L Tushman, 1997

The organization contains four key elements: the work; the people who perform thework; the formal organizational arrangements that provide structure and direction totheir work; and the informal organization, sometimes referred to as culture or operatingenvironment, that reflects their values, beliefs, and behavioral patterns The realchallenge of organizational design is to select from a range of alternatives the mostappropriate way to configure the organizational components to create the outputrequired by the strategy To do this, it is essential to understand each organizationalcomponent and its relationship to the others

- The work

This general term presents the basic and inherent activities engaged in by theorganization, its units, and its people in furthering the company’s strategy Any analysisfrom a design perspective has to start with an understanding of the nature of the tasks

to be performed, anticipated work flow patterns, and an assessment of the morecomplex characteristics of the work–the knowledge or skills it demands, the rewards itoffers, and the stress or uncertainty it involves

- The people

It’s important to identify the typical characteristics of the employees responsible for therange of tasks involved in the core work: knowledge and skills they bring to their work,their needs and preferences in terms of the personal and financial rewards they expect

to flow from their work, their perceptions and expectations about their relationshipwith the organization, their demographics related to their work?

- The formal organization

This concept refers to the structures, systems, and processes of an organization tosupport its people and the work they do and to coordinate their activities to reach thestrategic objectives

- The informal organization

This term presents informal and unwritten guidelines that exert a powerful influence onpeople’s collective and individual behavior To be more specific, the informalorganization consists of a pattern of processes, practices, and political relationships thatembodies the values, beliefs, and accepted behavioral norms of the individuals whowork for the company

In terms of an effective and successful change process, Nadler and Tushman proposethat managers should administer all four components at the same time They say thatthe source of resistance to change could result from managers who ignore these sub-systems and the interaction among them

2.1.4.3 Nine-phase change process model developed by Anderson and Anderson

The most comprehensive model of organizational change is a Nine-Phase ChangeProcess Model developed by Anderson and Anderson (2001) The authors of this modelbelieve that this model “represents a full stream roadmap for getting your organizationfrom where it is to where it wants to be” The model deals with twenty-one aspects ofchange activities

The nine-phase change model divides the change process into nine phases that do notnecessarily flow in sequence Restructuring does not happen in a linear fashion and theorganization may be in more than one phase at the same time.

In the model, each phase of change contains major activities that are attained throughfocused tasks This model contains various levels of guidance, from abstract tocomprehensive detail The application of this model can be modified to any level ofdetail to suit specific requirements of the organization

Nine phases of the Nine-Phase Change Process Model are

Phase 1: Prepare to lead the change Activities in this phase:

- Start up and staff the change effort

- Create the case for change and determine the initial desired outcome

- Assess the organization's readiness and capacity to succeed m the change

- Build leader's capacity to lead the change

- Identify and build the infrastructure and conditions to support the change effort

- Clarify the overall change strategy

Phase 2: Create organizational vision, requirement

- Build organizational understanding of the case for change and the change strategy

- Create shared vision and commitment

- Increase organization's readiness and capacity to succeed in the change

- Demonstrate that the old way of operating is gone

Phase 3: Assess the situation to determine design requirements

- Analyze the situation to determine design requirements

Phase 4: Design the desired state

- Design the desired state

Phase 5: Analyze the impact

- Assess the impacts of the desired state

Phase 6: Plan and organize for implementation

- Identify the actions required to implement the desired state and develop theimplementation master plan

- Prepare the organization to support implementation

Phase 7: Implement the change

- Implement the change

Phase 8: Celebrate and integrate new state

- Declare, celebrate, and reward the achievement of the desired state

- Support the integration and master the new state

Phase 9: Learn and course correct

- Build system to refine and continuously improve the new state

- Learn from the change process and establish best practices of change

- Dismantle the temporary change support structures, management systems, policies,and roles

2.1.4.4 John Kotter’s eight step model

John Kotter is a former professor at Harvard Business School and consultant In 1996,

he published his book “Leading Change” and introduced his “eight steps oftransforming your organization” He defines eight key steps that are necessary tosuccessfully implement a change These eight-steps are: create a sense of urgency, form

a powerful coalition, create a vision for change, communicate the change vision,remove obstacles to empower broad-based action, generate short-term wins, build onthe change and anchor new approaches in corporate culture

- Create a Sense of Urgency

The first step of Kotter’s model aims at realizing the change when one has to startdiscussions about the competitive realities and look forward All participants need to beshown the opportunities and threats attached with the change and make themunderstand that change is needed This could be the spark to start their initialmotivation Kotter also suggests spending lots of time on this stage to convince at least

75 percent of the organization that the change really is crucial This will support thefurther process significantly

- Build a Guiding Coalition

In this phase, Kotter mentions to form a leading team, guiding the change The teamhas to include influential employees and own the power of various sources such asdifferent hierarchy levels and departments This team will continue building the sense

of urgency and then guide the change to success

Figure 2.2: John Kotter’s eight-step model

Source: John Kotter, 1996

- Form a Strategic Vision and Initiatives

The powerful coalition has to create a vision for the change, which should helpeveryone to understand the subsequent stages and actions that have to be done Astrategy for attaining this vision needs to be developed

- Convey and communicate the change vision

Kotter emphasises on the communication step during the process Kotter considerscommunicating the vision in many various ways in order to reach and deal witheveryone with the new behavior and methods

- Empowering Others to Act on the Vision

Action is essential in getting rid of obstacles to change and in time, the big ones must

be confronted and removed Therefore, empowering people is important to maintainthe credibility of the change effort as a whole, to develop new ideas, to try newapproaches, and to provide leadership Another factor should be considered in this step

is changing systems and structures that seriously undermine the vision Moreover,encouraging risk taking and nontraditional ideas, activities, and actions is necessary

- Create short-term wins

This step is particularly vital to motivate people and prevent critics and pessimists fromdamaging the change progress During this step, one should create short-term andvisible progress and promote them Moreover, people need to be publicly rewarded fortheir improvements

- Build on the change

Kotter states that many change projects fail because victory is declared too early Suchquick wins are only the beginning of what needs to be done to achieve long-termchange Each success provides an opportunity to build on what went right and identifywhat can improve The idea of continuous improvement, which is referred to as

‘kaizen’ is integrated in this phase

- Anchor the changes in corporate culture

Finally, in order to make the change stick, it should become part of the core of yourorganization The results of change must show in day-to-day work and help theemployees understand that the corporate success is supported by the new behavior

In Kotter’s perspective, communication is the key factor for a successful change Hefocuses on the importance of creating clear and realistic visions using an appropriatechange team, responsible with communicating visions, ideas, achievements andfailures within the organization This model can also be useful for managingemployees’ resistant behavior

2.1.5 Communication in restructuring process

Communication plays a role in aiding with unfreezing of old behaviors, the transitionduring which new behaviors are adopted and incorporated into habit (Gordon, 2006).Communication is also an essential component of any relationship and this is evenmore so during times of uncertainty and change happens in an organization One of thesensitive topics in restructuring programs is identifying the right time, content andways to communicate the key issues, which can provide people clear understanding ofactions needed to do to achieve the success Michitsch (2000) suggests the importance

of this topic through his statement that an individual without information cannot takeresponsibility; an individual who is given information cannot help but takeresponsibility According to Arnolds and Boshoff (2004), open communicationchannels and regular feedback are important to the successful management ofrestructuring In the company under their study, the chief executive officer and theproject manager have continuously communicated what was happening in each phase

of the project There was not always a lot of information relayed, however the keyaspects of each stage were communicated as and when details were available

Casio (2002) believes that open and ongoing communication is critical to a successfulrestructuring effort Effective communication with employees plays a vital role during

the restructuring period of any organization as it helps to properly inform theemployees about the changes This helps to remove the uncertainty and allay fearsamongst employees and therefore may overcome any resistance that may result thereof.Moreover, Paton and James (2000) believe that effective communication that isdesigned to inform, consult and promote action will help in overcoming both resistanceand ignorance amongst employees They argue that the following guidelines have to befollowed for the communication to be effective in communicating change events:

- The message has to be modified according to the skills and knowledge of theemployees to ensure that the message is well understood by the employees andtherefore eliminate any ambiguities

- The content and the tone of the message should also be appropriate for theaudience There should be congruency between verbal and non-verbalcommunication

- Communication must always be a two-way process that makes allowance forfeedback from employees This will help management to evaluate howemployees feel about the change

- Management should set the example in communicating in a consistent mannerand ensure that they practice what they preach

- Management should also make sure that the message does reach targetaudiences via attaining the required penetration of the communication mediumwithin the organization (Paton and McCalman, 2000, p.45)

Another research related to communication during the restructuring process wascarried out by Gowing, Kraft and Quick (1998) In their analysis of the lessons learntfrom the restructuring of AT&T, a United States company that manufactures and sellstelecommunications products, they found that open communication with employeesduring restructuring is vital for a successful organizational restructuring They

highlighted the following as the key restructuring lessons that are related tocommunication:

- Open and honest communication is more important and desirable than hidingchanges from the employees

- Important messages should be repeated again and again as the employees’understanding of whatever is communicated to them tends to be adverselyaffected by the anxiety during the restructuring period Therefore, managementshould not assume that employees have properly heard and understood what wascommunicated to them

- Different people have distinguishable preferences of methods of communicationamong newsletters, e-mails, memos, and et cetera As a result, it is advisable touse multiple ways of communication to the employees in order to cater for everyworker’s preferences However, Gowing, Kraft and Quick (1998) contend thatface-to-face communication between management and employees is the mosteffective form of communicating changes within the organization

- Communication messages need to be consistent throughout the organization.They found that this alignment of messages across the organization helped toclarify issues as well as enhance the confidence of employees If differentmessages for various parts of the organization are employed, employees tend toconfuse and be brought a sense of unfair treatment

- The size of change or degree of ambiguity that the employees are experiencingshould determine the frequency of communication with employees Reflecting

on the restructuring, a leader of AT&T comment that “the amount ofcommunication should be directly proportional to the magnitude of change oruncertainty that people are experiencing, not the amount of informationavailable to share”

The importance of communication in restructuring was also illustrated by the results ofCascio’s a study by 2002 that was conducted at two merging manufacturing plants thatbelonged to Fortune 500 companies The aim of this study was to evaluate theperception of the employees of the company during and after merger One plant wasnamed control plant and the other one experimental plant Communication with theexperimental plant was open and continuous whilst there was poor communication inthe control plant Research was then carried out on both groups to analyze changes inthe employees’ perceptions of the company after the merger This study revealed thefollowing findings:

- Employees in the experimental plant experienced no change in the levels ofstress compared to the 9 per cent increase in the level of stress of the controlplant

- The level of ambiguity increased by 24 per cent amongst the employees in thecontrol plant compared to only 2 per cent increase in the experimental plant

- Job satisfaction decreased by 21 per cent in the control plant whilst a 7 per centincrease was recorded amongst the experimental plant

- The level of commitment decreased by 11 per cent in the control plant whilst nochange in commitment was recorded amongst the experimental plant

- With regards to the perception of the company as caring, trustworthy and anhonest organization, there was a 25 per cent decrease amongst the control plantcompared to 14 per cent increase amongst the experimental plant employees

- The performance of employees in the control plant decrease by a whole20 percent whilst no change was detected amongst the experimental plant employees;and

- There was a 12 per cent decrease amongst the control plant employees whenasked whether they intend to continue working for the organization compared to

only 6 per cent decrease amongst the experimental plant employees (Cascio,

2002, p.94-96)

The results shown by the study above justifies the view open and continuouscommunication with employees is critical for the restructuring to be successful.Therefore, it is desirable to put in place a systematic communications strategy at thebeginning Cascio (2002) summarizes the following points as important incommunicating with employees during the restructuring process, namely:

- Management must always get their employees to understand and accept therestructuring of the organization

- They must drum up support from all the stakeholders

- Minimizing the negative effects of ambiguity

- Employees must be kept focused, energized and committed to the company

- The behavior of employees must be changed as needed

- The performance of the organization must be sustained at all times

- It is important to also use face-to-face communication and not onlycommunications such as intranet, e-mail, memoranda, or newsletters

- Management must also try not to use only one-way communication Two-waycommunication is also important as it enables management to ascertain theaspirations as well as feedback of the employees about the restructuring

- The chief executive officer of the organization must be the one to break thenews to the employees Employees always prefer to hear from the chiefexecutive officer about the future direction of the organization

It is often hard to communicate with staff during any organizational restructuringbecause managers may be scared to communicate with their staff until they have all theanswers while staff will be obsessed with their future They would be expectingmanagement to give them straightforward answers instead of unclear messages If this

process is not managed appropriately, the credibility and integrity of management, intheir execution of change, can be seriously damaged Available literature fromAustralian Business Solutions Group (2004) determines the following ten steps as key

to employ a successful communication strategy during times of any restructuringprogram:

- Obvious things about the change including change content and process have to

be agreed at the beginning In addition, potential benefits must be identified andthe process of communicating them is determined at this step

- Senior management must be engaged all the way in the development process ofthe communication strategy to make sure that they not only understand andembrace the change, but also that they own the strategy

- Create p a ‘story’ that refers to relevant questions relating to the nature ofchange, reasons for change, way forward and implications for staff members

- Management must ensure that the story tackle concerns of staff and alsoillustrates what management wants to say in a simple and credible manner

- Continuous open and truthful updates of every step of restructuring process

- Understand and listen to the real troubles of staff by constantly collectinginformation from managers and staff

- Measure the process and performance to find out whether the communicationprocess is effective and the performance results are accomplished Somemethods can be employed by change managers such as assessing changeawareness in various parts of the business, counting the number of peoplebriefed and measuring productivity, time lost, market share If adverse effectstake place, communication approach should be changed

- Build up new communication systems such as a communications teamcomprising members across functions and network across business to drivecommunication of change across the organization The system should

concentrate more on two-way, face-to-face communication (80 per cent) and useother communication channels (20 per cent) sparingly as support.

- Observe carefully what staff members are saying and thinking about this changeand quickly reject any adverse signs Besides, a signaling plan for the topmanagement should develop to help them manage such signals effectively

- While senior managers should communicate the big picture’ and any bad news,other managers should communicate detail This arrangement will help to putsome credibility into the process It is also important for senior managers to play

a mentoring role for ‘hot spots’ in the organization

- Communication process requires to be administered well by closely monitoringthe situation and revising the communication strategy as the restructuringprocess carries on

2.2 Employees under restructuring conditions

2.2.1 Employee attitude

Based on Donaldson (1994), business process restructuring has become a crucialinstrument of organization development, with the objective of making organizationsmore competitive by streamlining work processes, re-defining jobs within theorganization and redesigning the overall organizational structure These strategies andchanges have a profound impact on employee attitudes (Kochan & Useem, 1992) Attitudes are the result of the feelings and beliefs that one has about one's self, as well

as about other people and situations (Lamberton & Minor, 1995) Attitudes alsodirectly influence one's behavior According to Kochan & Useem (1992), it is almostimpossible to implement organizational change or restructuring without affecting theprevailing employee attitudes within the organization

Various theories have been suggested trying to explain the process of change whichoccurs in employees' attitudes when some form of organizational change isimplemented, for example, the group dynamic approach and the Yale attitude change

approach (Zimbardo & Leippe, 1991) Although present attitudes relate to pastexperience, the problem in organization management is attitudes in the future Theindividual, the people surrounding the individual and the environment are in a constantstate of change This means attitudes supporting the individual's personal development

in the present need to be changed, if they are to perform the same or a differentfunction in the future According to Kochan & Useem (1992), attitude change can beclassified in two ways, namely:

The congruent change: This change is categorized as a change in intensity but not inthe direction of an existing attitude If employees, for example, have a negative attitudetowards their job, this attitude can be intensified by a bad experience or a bad workingenvironment Therefore, the employee can form an even more unfavorable attitudetowards work

The incongruent change: This refers to changes in direction of the individual's attitude

It simply implies, for example, that an employee's unfavorable or negative attitudetowards work can be changed to a favorable way of thinking

It is widely accepted that an intervention such as organization restructuring or change,can significantly contribute towards attitude changes among employees, which in turnaffects employee loyalty, productivity and motivation either positively or negatively,depending on the nature and direction of the attitude changes (Donaldson, 1994;Heymans, 1997; Robbins, 1996)

2.2.2 Employee engagement

2.2.2.1 Definition of employee engagement

Employee engagement has become a popular topic within both academic and practicalareas since 1990s Kahn (1990) argued employee engagement in a psychologicalperspective that “in engagement, people employ and express themselves physically,cognitively and emotionally during role performance” May et al conducted a study in

2004 to test Kahn (1990)’s theory and concluded that meaningfulness, safety and

availability could be suggested as factors that engagement relies on Meanwhile, someliteratures related employee engagement to burnout, advocating the former as thepositive antithesis of the latter Maslach et al (2001) constructed a model to explain thefactors that lead to burnout and engagement, including workload, control, rewards andrecognition, community and social support, perceived fairness and values It wasargued by Maslach and his colleagues that employee engagement is closely related tothese six factors and can be expected as mediation to link them with work outcomes.Robinson et al (2004) conceptualized employee engagement as “a positive employeeattitude towards the organization and its values” and described it as a two-wayrelationship between employer and employees, involving an awareness of the businesscontext.

Although theories have been created by Kahn (1990) and Maslach et al (2001), nostudies have really looked into the reasons why individuals show different engagementaccording to various conditions until Saks (2006) extended the work by introducingSocial Exchange Theory to this area Saks (2006) argued Social Exchange Theory as atheoretical foundation that gives explanation of why employees decided to be more orless engaged in work and organization, suggesting that employees regard engagementlevel as something that they repay to the organization for an exchange of the resources( e.g compensation, benefits) provided by their organization

Some researchers gave various definitions on employee engagement later after Saks(2006)’s development In 2009, MacLeod and Clarke concluded to look at employeeengagement as a workplace approach designed to ensure that employees are committed

to the organizations’ goals and value, motivated to contribute to organizational successand at the same time to enhance their own sense of wellbeing

Alfes et al (2010) defined engagement as “being positively present during theperformance of work by willingly contributing intellectual effort, experiencing positiveemotions and meaningful connections to others.” In one of the most recent study onemployee engagement, Gourlay and his colleagues (2012) distinguished different

levels of engagement on “transitional” and “emotional” , reminding of Meyer andAllen ( 1990)’s three-component model on understanding organizational commitment.They advocated that emotional engagement, which is driven by a desire on the part ofemployees to do more for the organization, is most appreciated.

Regarding antecedents of employee engagement, along with the study to clarify theconcepts of employee engagement and enrich the theoretical foundation of it,researches exploring the antecedents of employee engagement are being conducted aswell in recent years Shuck and Wollar (2010) described employee engagement as anindividual-level variable often measured at the organizational level The role ofmeaningful workplace environment and an employee’s involvement in contextuallymeaningful work were examined as antecedents to employee engagement (May et al.,2004; Rich et al., 2010) Saks (2006) pointed out a distinction between two types ofengagement-job engagement and organization engagement, argued that differentpsychological conditions lead to various engagement and their antecedents as well asconsequences in divers ways Saks (2006) used job characteristics, perceivedsupervisor support, rewards and recognition and procedural justices as consideredfactors that could affect engagement levels Literature also addressed the issue of work-life balance, personal involvement in corporate citizenship behaviors and theconnection of an employee’s work to overall organizational goals as factors that should

be considered (Wollard & Shuck, 2011)

Moreover, they also summarized several workplace antecedent models which tookcuriosity, optimism, self-efficacy, self-esteem, perceptions of the self and coping styleinto consideration

Despite the antecedents that have been discussed on the individual level above, morecomplex factors were also examined by researchers on an organizational level

Table 2:1: Organization-level antecedents of employee engagement

Authentic corporate culture Level of task challenge

Corporate social responsibility Manager self-efficacy

Hygiene factors Perception of workplace safetyJob characteristics Positive workplace climate

Source: Wollard & Shuck, 2011

In terms of engagement under organizational changes, while various antecedents both

on individual and organizational level have been discussed, it is clear that antecedentsare not process-dependent but rather functions that differ by conditions for the state ofengagement to develop (Wallord & Shunk, 2011) Organizations are expected to createtheir own employee engagement culture in respective ways since every organization isunique with situations and no approach is one-fits-all Since organizational changingactivities are happening increasing frequently in global scope, factors that impactengagement under such circumstances hence worth looking into For example, PeterBaynham (2011) talked about the factors enhancing employee engagement under amerger and acquisition situation, enlightened the study to take a perspective on achangeable environment However, it is pity that very limited researches have beendone with an organizational changes eye, not even any kind of studies are foundregarding a cost reduction perspective As Anne Gibson (2011) described a crucialsituation for a county council to continue to invest in its engagement programs while

cutting the cost of delivery, it is with interests to discover how does the reduction onpersonnel cost activity impacts on engagement and what do organizations do to dealwith the possible consequences caused by this issue.

With regard to engagement models, from the research carried out by the InternationalSurvey Research in relation to employee engagement, it is important that anorganization must understand and locate the current components and scope of itsemployee engagement in order to take necessary steps to improve it

Based on a result of their research, the International Survey Research developed a threecomponent model in 2004 to facilitate the apprehension of employee engagement at anorganizational level, the Think, Feel and Act model The three factors are of mutualimportance to aid in organizational understanding of the employee engagement process

in order to access the present level of engagement and to lay out a path to foster thislevel of engagement

Figure 2.3: The International Survey Research’s Model

Source: The International Survey Research, 2004

According to the International Survey Research, cognitive (think) takes place when anindividual accepts with the mission, values and goals of the, resulting in a sense ofbelonging to and contributing towards the organization In relation to the affective(feel) component of the model, the International Survey Research comments thisconcept as a positive consequence of attaining a sense of pride in their association tothe organization Affective is the element within the model which can be closelycorrelated with organizational loyalty The last and most critical factor of theInternational Survey Research's model is the behavioral (Act) element This componentconsists of the actions displayed by the individual within the organization, thusreinforcing their beliefs and feelings There are two aspects to this element, which arethe individual’s inspiration to endure with the organization as well as the amount ofeffort including going above and beyond their normal duties so as to guaranteeorganizational success.

Also according to the International Survey Research, strong employee engagementstems from a combination of all three components of the model The three componentsdescribed in the model need to be measured so that relevant and effective interferencescan be designed to progress engagement levels within the organization TheInternational Survey Research also recommends that a cluster analysis is conducted toclassify group individuals within your organization who have similar engagementscores Afterwards, a locator analysis should also be conducted in order to locate where

in the organization your engagement levels are highest and lowest There are fiveclusters, namely highly engaged, engaged, motivated non-advocates, on thefence/uninspired and disengaged

Under the International Survey Research model and code of best practice, theorganization should post cluster analysis, carry out a linkage analysis in order to findout how and why employee engagement links to key performance indicators of theorganization, for example customer service By doing so, the extent to whichengagement is effecting your overall business can be found The next step under the

International Survey Research's model is to draw up an action plan, in order to translatethe results of the engagement survey and linkage analysis into appropriate interventions

to facilitate employee engagement generation and growth Finally, periodicmeasurement is required to confirm that objectives are being achieved

2.2.3 Employee morale

Employee morale has been a subject of extensive social research, which aimed atidentifying aspects of work related to either high or low employee morale AsHetherington (1997) signalized, major studied areas include supervision, remuneration,the job itself, company and relationships with other colleagues In his study of structureand job satisfaction in a multihospital system, he uses a modified definition of morale:

“the degree to which the members of a social system have a positive affective (andcognitive) orientation toward membership in the system" (Hetherington, 1997, p 16)

To take a measure of morale, author uses three elements: orientation towardsupervision, remuneration (including “career advancement, salary, and satisfaction withachievements when compared with expectations” (Hetherington, 1997, p 19)) andworkload

On the other hand, Dimitriades and Papalexandris (2011), while investigatingemployee morale and commitment in the Greek banking sector, explained morale as

“employee perceptions of team-based efforts directed towards organizational goalaccomplishment” (p 145) Consequently, measure taken by their research was basedmainly of employee perceptions of present team spirit, positive energy, enthusiasm andpride in the organization and ignored personal analysis of the respondent Since thepurpose of their study was to decide if there are any bridges between organizationalclimate, employee commitment and financial performance, morale assessment focused

on the whole organizational morale and not employee-level evaluation

However, not all research on employee morale focuses on the general well-being of theemployees Researchers have tried to connect employee morale with workplaceperformance, relying on the assumption that morale is highly dependent on the

employee perceptions of management Analysis was performed by Weakliem andFrenkel (2006) using result of AWIRS – Australian Workplace and Industrial RelationsSurvey, which collected the data from over 19 thousand employees The researchshowed that positive feelings regarding management and organization resulted inhigher productivity, concluding that improving “morale not only makes work morepleasant but also produces productivity gains.”

Furthermore, other researchers argue that employee loyalty and commitment canmeasure morale The signals of low morale can be expressed by the increase ofcomplaints, decrease of trust in company’s management and voluntary absenteeism.Therefore, indicators such as rate of absenteeism and decline in loyalty to thecorporation can be safely interpreted as indications of decline in morale.(Makawatsakul & Kleiner, 2003) Authors also stress the grandness of the highemployee morale at any given company as a strong competitive advantage Although itmight be hard to attain, it is also hard for the rivals to imitate, unlike any other physicalasset It is also important to mention that discussed research emphasizes on therelationship between downsizing and morale, including presence of “job insecurity,perceptions of unfairness, depression, stress from increased workloads, fear of change,loss of loyalty, reduced risk taking, and an unwillingness to go beyond the requiredminimum”

In terms of employee morale under restructuring conditions, according to Sablonnière,Tougas, Debross, & de la Sablonnière (2012) organizations are continuously changingentities This change is caused by both external and internal factors such asinternationalization processes and recent economic instabilities, which have affectedorganizational change regarding employee base, branch networks, size, locations,strategies and structures Some of these changes are interdependent and some occurregardless of other pressures, however the subject under analysis – structural change –can influence almost every part of the organization Great part of research is concernedwith the effect that organizational change has on the employees, as they are the part of

the organization that the outcome of the restructuring depends on It has beensuggested that even the thought of organizational changes can be seen as threateningperson’s job security and therefore, one of the managers’ duties is to attend to concerns

of the employees Endorsing positive outcomes would help both the organization andthe employees, therefore major changes should be properly addressed to reduce thepace of change of provide support in case of rapid changes After all, the extent towhich change can succeed is highly dependent of the people that remain after thechange

Importance of the morale of the remaining workforce has been emphasized by Fugate,Prussia & Kinicki (2012) They also suggest that organizational changes can also beinterpreted as the means to improve financial performance and competitiveness bydownsizing, outsourcing and restructuring However, it is important to mention, thatnegative experiences for the remaining employees can actually impede the changeprocess and diminish the benefits that the change was initiated to achieve As a result, it

is crucial for the organizations to understand how upcoming or occurring changes cancause negative reactions and how to manage them in order to achieve best possibleoutcomes

Structural changes can often result in demotions and redundancies of some of theemployees and although, in some instances they are unavoidable, other employeesobserving the effects are likely to feel threatened Such feelings have been observed tocause employee withdrawal, for example intentions to seek other employmentopportunities, voluntary turnover or absenteeism (Fugate, Prussia, & Kinicki, 2012)

As theory review points out, employee morale can be heavily influenced both duringand after the restructuring process, as organizational change results in uncertainty andeven fear amongst employees Consequently, employee morale can suffer and impedethe effects that organizational change was meant to attain